Intraday Variation in the Bid-Ask Spread: Evidence after the Market Reform
25 Pages Posted: 6 Feb 2002
In this article we show that intraday variation in spreads for Nasdaq-listed stocks has converged to intraday variation in spreads for NYSE-listed stocks after the implementation of the new order handling rules. We attribute this convergence to the Limit Order Display Rule, which requires that limit orders be displayed in Nasdaq best bid and offer (BBO) when they are better than quotes posted by market makers. Our findings suggest that the different patterns of intraday spreads between NYSE and Nasdaq stock reported in prior studies can largely be attributed to the different treatments of limit orders between the NYSE and Nasdaq before the market reform.
Keywords: Nasdaq, order handling rules, intraday pattern, spreads
JEL Classification: G14
Suggested Citation: Suggested Citation